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Global Credit Research - 11 Apr 2011
Approximately $375 million of debt securities affected
New York, April 11, 2011 -- Moody's Investors Service assigned a B3 rating to Calumet Specialty Products
Partners, L.P.'s (Calumet) proposed $375
million senior unsecured note offering maturing 2019. Moody's also
assigned a B2 Corporate Family Rating (CFR), B2 Probability of Default
Rating (PDR), and SGL-3 Speculative Grade Liquidity Rating.
Calumet's proposed offering will repay a $360 million secured
term loan facility. The outlook is positive.
"Calumet's relatively stable free cash flow from its specialty products
segment, diverse specialty products portfolio and strategically
positioned operating assets support its B2 rating," stated Francis
J. Messina, Moody's Vice President. "However,
the rating also reflects the inherent volatility of the company's
transportation fuels business along with its master limited partnership
structure and distribution burden to its unit holders."
The new notes are being issued by Calumet's publicly traded Master
Limited Partnership (MLP). The new notes will be used to refinance
a $360 million term loan facility at Calumet Lubricants Company,
L.P. (Lubricants) the operating company for Calumet.
Upon completion of Calumet's notes offering, all Lubricants'
ratings, including its B2 CFR, B3 PDR and B1 senior secured
bank credit facility rating, will be withdrawn.
The B2 CFR also considers Calumet's niche position within the specialty
products industry and the degree of cash flow durability this business
provides relative to its transportation fuels business. As a leading
independent niche producer of specialty lubricants, solvents,
and waxes, Calumet is capable of producing a wide variety of specialty
products that meets varying customer's needs. Additionally,
the specialty business lends itself to more durable margins over time
as the company has pushed through price increases to keep pace with rising
feedstock costs, though with a four to six week lag. In 2010,
this business generated approximately 94% of the consolidated gross
margin, providing a higher degree of stability to the consolidated
earnings and cash lows.
Although the specialty products business tends to be more durable than
the fuels business, the demand for specialty products tracks the
overall economy and is therefore, subject to cyclical swings.
The fuels business is particularly volatile and the margins in that business
can fall significantly as they did in 2009, when gross profit for
that business fell by more than 50%. Given that the business
represents roughly half of the total throughput capacity for Calumet,
it can have a significant impact on consolidated earnings and cash flows.
This can ultimately affect Calumet's ability to continue to meet the ongoing
distribution requirements to the MLP common unit holders as it did in
2008, when the company cut its unit distributions due to cash flow
The positive outlook assumes that the demand for specialty products will
increase as the economy improves, resulting in increased EBITDA
with leverage staying under 4.0x. We could upgrade Calumet's
ratings if it shows consistent cash flow growth following the fire at
its Shreveport facility with leverage comfortably under 4.0x while
managing its working capital in a rising oil price environment and maintaining
distributions at levels that are supported by internal cash flows.
A rating downgrade is a possibility should refining margins negatively
affect cash available to cover operating expenses and debt service,
protracted refinery outages or supply disruptions, or a more aggressive
The SGL-3 rating reflects the expectation that Calumet will have
sufficient liquidity over the next twelve months to meet its minimal capital
spending requirements, interest expense, working capital needs,
and MLP common unit distributions.
The B3 senior unsecured notes rating reflects both the overall probability
of default of Calumet, to which Moody's assigns a PDR of B2,
and a loss given default of LGD 5, 70%. The proposed
senior notes are unsecured and guaranteed by all subsidiaries on a senior
unsecured basis. The asset backed revolving credit facility has
a borrowing base of $270 million. The size of the credit
facility's potential priority claim in comparison to the senior notes
results in the notes being rated one notch beneath Calumet's B2 CFR,
in accordance with Moody's Loss Given Default Methodology.
The last rating action for Calumet was on July 26, 2010 when Moody's
withdrew the B3 rating assigned to the $450 million senior unsecured
notes offering by Calumet Specialty Products Partners, L.P.
when the company decided to not to proceed with the offering. Moody's
also withdrew the B2 Corporate Family Rating (CFR), B2 Probability
of Default Rating (PDR), and a SGL-3 Speculative Grade Liquidity
The principal methodology used in rating Calumet Specialty Products Partners,
L.P. was Moody's Global Independent Refining and Marketing
rating methodology, published in December 2009.
Calumet Specialty Products Partners, L.P. is headquartered
in Indianapolis, Indiana.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Francis J. Messina
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns a B3 senior unsecured rating to Calumet Specialty Products Partners, L.P.
250 Greenwich Street
New York, NY 10007
No Related Data.
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